"Catholics are under the leadership of the Communist Party. But how can we disobey the pope in Rome?" An asked. "The only freedom we have is to say our prayers. But the government can't control what we feel in our hearts."

Churches across China overflowed with worshippers this Christmas season, but Chinese Christians still struggle with repression and official limits on religious practice.

Since the government relaxed the ban on religion after reforms were launched in 1978, believers have returned to open worship and their numbers are on the rise.

"Congregations are increasing at a very fast pace," says Gotthard Oblau, a Hong Kong-based official with the Amity Foundation, a development agency linked to Protestant churches in China. "At the national level, religion is restricted, but there is still enough flexibility so that Christians can build churches, worship, and practice their faith."

Yet Western observers say that the degree of flexibility varies from town to town, county to county, and province to province. In recent years, hundreds of clergy and believers have been arrested and scores of "house churches," often hidden in private huts, have been shut down.

Provinces such as Anhui and Hebei have maintained oppressive restrictions, while Zhejiang Province is so liberal that some Protestant groups have labeled it "China's Jerusalem." Underground churches

Christians number only a tiny percentage of China's population, although no one is sure how many there are. Members of state-run, "patriotic" churches are estimated at about 10 million. The underground Christian community could be as large as 40 million, Western observers say.

Underground Christians, especially Catholics, do not accept the supremacy of China's Communist rulers on religious matters. In turn, they have been accused of fomenting political discontent.

Underground Christians remain bitterly divided with the official church, but individual members say that belonging to the official church is the only way to keep religious practices alive in China.

As economic reform accelerates, religion has grown as a popular alternative to the national obsession with getting rich. Ironically, churches are unable to rise to the challenge, analysts say.

"Churches are more traditional in that they still are trying to cope with the problems of local development and the relation between official and underground churches," says Yves Nalet, a Jesuit priest and editor of the Hong Kong-based China News Analysis. "There is a lack of theological reflection."

Funding remains a major point of contention between the churches and particularly local officials, political observers say. Christian groups, long seen as a legacy of foreign imperialism, became dependent on foreign donations when the Communists came to power in 1949.

China's three decades of isolation and government control forced churches "to learn to exist on their own resources," Mr. Oblau says.

But as China promotes foreign investment and economic ties to the outside world, church groups hope official opposition will lessen and overseas financial help could once again become acceptable. Dilemma for church

In September at a Catholic convention, Bishop Zhong Huaide of the state-run church warned that "there are people abroad who attempt to take advantage of China's policy of opening to the outside world to recontrol and dominate China's Catholic Church."

In a recent interview, however, Bishop Zhong insisted the church wants to foster overseas financial ties. "With further opening and reform, we hope to get donations from Chinese Catholics in other countries," he said. "We even plan to go into tourism and tertiary industries and form joint ventures."

Overseas money continues to be a sensitive issue particularly at the local level, observers say. In Hebei Province in 1989, thousands of police swept into the village of Youtong to destroy a temporary church, injuring scores of villagers who defended the edifice. Hebei Catholics said the police action was prompted by official anger over an overseas donation which was being used to build the church.